What is a buy to let mortgage?
The clue to this type of mortgage is in the title. It’s the mortgage you can apply for if you want to buy a property which you then let out to others to live in themselves. It differs from a normal mortgage as it’s mainly assessed on the profitability of becoming a landlord rather than your personal income. The amount lenders will let you borrow will be linked to the amount of rent you can expect to receive from renting out the property.
Pros and cons of buy to let mortgages
To become a landlord, this is the type of mortgage you’ll need. While the amount you can borrow will be based on the rent potential of the property, you’ll still be expected to have a minimum income yourself – usually around £25,000. If your property has a period without tenants, you’ll have no rent payments coming in to cover the mortgage costs, so you’ll need to be able to cover those payments yourself. Unfortunately, interest rates are usually higher than they are for other mortgages, and you’ll need a higher deposit. Other costs and charges may also be higher. However, buy to let mortgages are the gateway to start making money on your property.
Interest only mortgages
Rather than traditional repayment mortgages, some aspiring landlords opt for an interest only mortgage. With this type of deal, you’ll only pay the interest rate each month, meaning you’ll have to save in order to repay the entire loan amount after a set period (usually about 25 years). This can be popular with landlords as they can use the rent received on their property to save for the repayment or sell the property at the end of the term (although this can be risky if it sells for less than its original value). Weigh up your circumstances to decide whether an interest-only or repayment option is best for you.
If you’re moving home, but want to keep your old property to rent out to others, this is called ‘let to buy’ and you’ll need to switch your mortgage to a buy to let deal. If your current lender doesn’t agree to this, you may wish to consider remortgaging with a different lender.
Becoming a landlord
Renting out a property isn’t a simple as getting the right mortgage. Ensure you have the right support in place to you meet your legal responsibilities towards your tenants and property, as well as information about the various extra expenses involved such as taxes, licences, landlord insurance and health and safety obligations. You’ll also need to be business-savvy when finding the right property to let, and things to consider include:
- Desirable locations including transport links, local amenities and low crime rates
- The type of tenants you want to attract & what will appeal to them
- Demand for letting properties in the area, future growth opportunities and planned major developments
- Rent expectations
- What other letting properties in the area are offering tenants
- The type of advice you need and where to find the best mortgage deal
When looking to apply for any type of mortgage, getting professional, impartial advice can help you get the best mortgage product for you. Find a trusted mortgage adviser in your local area here.